WT/TPR/S/173 Trade Policy Review 
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) OVERVIEW  
1. Hong Kong, China's open and transparent tr ade and investment policy framework has 
remained unchanged since its previous Trade Policy Review.  On regional integration matters, action 
towards fostering economic cooperation with a nd accessing the Mainland market for goods, services, 
and investment has been a major priority under a Closer Economic Partnershi p Arrangement (CEPA).  
Regional cooperation was further strengthened with  the launch of a Pan Pearl River Delta (PRD) 
Initiative. 
(2) GENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK  
2. The Basic Law remains the principal c onstitutional document governing the Hong Kong 
Special Administrative Region (HKSAR) of the Peopl e's Republic of China.  The Law stipulates the 
principle of "one country, two systems";  that is , while being a local administrative region, which 
comes directly under the Central Government of th e People's Republic of China, the HKSAR enjoys a 
high degree of autonomy except in foreign affairs and defence, and has been authorized to conduct 
relevant external affairs, including foreign trade.  The previous market-based system and way of life 
are to be maintained for at least 50 years afte r 1997, and the HKSAR's courts are endowed with 
independent judicial power, including that of final adjudication.1 
3. The Government of the HKSAR is headed by the Chief Executive, who is appointed by the 
Central Government of China following his/her selection by an Election Committee.2  T h e  C h i e f  
Executive is formally empowered to conduct extern al and other affairs on behalf of the HKSAR 
Government, as authorized by the Central Government of China;  this includes the power to conclude 
and implement multilateral, regiona l, and bilateral trade agreemen ts with foreign countries and 
regions and relevant international organizations.  The Chief Executive is accountable to the Central 
Government and the HKSAR in accordance with the provisions of the Basic Law.  The Chief 
Executive is advised in policy-making by an  Executive Council.  The Executive Council has 
29 members,  comprising 14 Principal Official s appointed under the Accountability System and 
15 Non-Officials.3  Principal Officials are the three most sen ior officials in the ex ecutive branch of the 
Government (i.e. the Chief Secretary for Administrati on, the Financial Secretary, and the Secretary of 
Justice) under the Chief Executive, and 11 Direct ors of Bureaux (also known as Secretaries of 
Bureaux), all of which are politically appointed;  they are assisted by permanent secretaries (who are 
civil servants) within the respective bureaux.  
                                                      
1 The power of interpretation of the Basic Law is vested in the Standing Committee of the National 
People's Congress (Basic Law Article 158). 
2 The term of office of the Chief Executive is five years, with a maximum of two terms.  The Election 
Committee responsible for electing the second-term Chief Ex ecutive is composed of representatives from four 
sectors each with 200 members:  industrial, commercial, and financial subsectors;  the professions;  labour 
groups, social, and religious associ ations; and members of the LegCo, representatives of district-based 
organizations, Hong Kong deputies to the National People's Congress of the People's Republic of China, and 
Hong Kong members of the National Committee of the Chinese People's Political Consultative Conference.  
The members of the Election Committee were returned by elections, with the exception of the ex-officio members (LegCo members and Hong Kong deputies to th e NPC), and members from the religious subsector, 
who were returned by nomination. 
 3 As provided for in Article 55 of the Basic Law, members of the Executiv e Council are appointed 
from among principal offi cials of the executive author ities, Legislative Council memb ers, and public figures;  
their appointment or removal is decided by the Chief Executive, who chairs the meetings of the Executive 
Council.  Their term of office shall not extend beyond the expiry of the term of office of the Chief Executive who appoints them (Government of the HKSAR, 2005d).
 Hong Kong, China WT/TPR/S/173 
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4. The Legislative Council (LegCo) is the HKSAR's legislature.  It consists of 60 elected 
members.4  The current term of office of the LegCo is four years.  The President of the LegCo is 
elected by, and from among, its members.  Members of the LegCo may introduce, individually or jointly, bills that do not relate to public expenditu re or to the political structure or the operation of the 
Government.  All bills relating to  government policies need the writte n consent of the Chief Executive 
before being introduced into the LegCo.
5  Bills passed by the LegCo become laws (ordinances) only 
after being signed and promulgated by the Chief Executive.  If the Ch ief Executive considers that a 
bill passed by the LegCo is not compatible with  the overall interests of the HKSAR, it may be 
returned to the LegCo within th ree months for reconsideration.6 
5. The legal system of the Hong Kong Special Ad ministrative Region (HKSAR) is based on the 
rule of law and the independence of the judiciary, wh ich is headed by the Chie f Justice.  The judiciary 
consists of a Court of Final App eal, a High Court (comprising the C ourt of Appeal and the Court of 
First Instance), a District Court, magistrates' cour ts, juvenile courts and sev eral tribunals (e.g. Lands 
Tribunal, Labour Tribunal).  The Court of Final App eal, which is the highest appellate court in the 
HKSAR, is headed by the Chief Justice.  In 2005, th e magistrates' courts processed about 61% of the 
cases filed at all court levels in the HKSAR.7 
6. Under the District Administration Scheme, Di strict Councils advise the HKSAR Government 
on matters affecting the well-being of the people li ving and working in the districts, and on the 
provision and use of public facilities and services within the districts.8  The District Councils can also 
undertake projects for environmental improvement, co mmunity involvement, and for the promotion of 
recreational and cultural activities within the Distri ct.  The second term of the 18 District Councils 
started on 1 January 2004.  In ad dition to the 400 elected members, there are 27 ex officio members 
(i.e. Rural Committee chairmen in the New Territori es) and 102 appointed members, making a total of 
529 District Council members.  Their term of office is for four years from January 2004.   
(3) STRUCTURE OF TRADE POLICY FORMULATION  
7. Under the Basic Law, the HKSAR is a separate customs territory;  it uses the name 
"Hong Kong, China" to participate individually in  the relevant international organizations and 
international trade agreements, such as the WTO Agreements.  The Basic Law stipulates that the 
HKSAR may, on its own, maintain and develop re lations and conclude a nd implement agreements 
with foreign States and regions a nd relevant international organiza tions in the appropriate fields.9  The 
Basic Law also stipulates that the HKSAR shall main tain the status of a free port, pursue a policy of 
free trade and safeguard the free movement of goods,  intangible assets, and capital, and that it may 
issue its own certificates of origin for products in accordance with prevailing rules of origin.  
                                                      
4 The composition of the LegCo is 30 members returned by functional constituencies,  and 30 members 
returned by geographical constituencies through direct elections.  
5 Article 74 of the Basic Law.  A LegCo member may introduce "private bills", which do not relate to 
government policies;  a private bill provides primarily for the particular interest or benefit of an individual, 
association, or corporation rather than the interest or benefit of the public.  Twelve "private bills" have been 
introduced in the LegCo since th e 2002-03 legislative session.   
6 Articles 49, 50, and 51 of the Basic Law.  
7 More information and statistics on the judiciary branch is available online at:  Government of the 
HKSAR (2005d). 
8 Government of the HKSAR (2005d). 
9 Including economic, trade, financial and monetary, shipping, communications, tourism, cultural, and 
sports matters. WT/TPR/S/173 Trade Policy Review 
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(i) Government bureaux and departments 
8. Under the Commerce, Industry and Technology Bureau, the Commerce and Industry Branch 
is responsible for the formulati on and coordination of policies and strategies in relation to the 
HKSAR's external trade relations, inward inv estment promotion, and intellectual property 
protection.10  It also oversees the development of polic ies and programmes for the industrial and trade 
sectors, including small and medium-sized enterprises (SMEs), as well as the promotion of services sectors.  The Branch is assisted by the Trade and Industry Department, Invest Hong Kong, the Customs and Excise Department, and the Intellectual Property Department.  It is also supported by a 
network of economic and trade o ffices outside Hong Kong, China. 
9. The Trade and Industry Department is res ponsible for handling the HKSAR's commercial 
relations with its trading partne rs, implementing trade policies and agreements, including the issuance 
of certificates of origin, export and import licen ces and certificates of Hong Kong Service Supplier 
(HKSS), as well as providing general support servi ces for the industrial sector and SMEs.  Upon the 
signing of the Mainland and Hong Kong Closer  Economic Partnershi p Arrangement (CEPA) 
(section (6)(ii)(b)) in June 2003, the Customs and Ex cise Department has take n on the responsibility 
of enforcing the relevant control system to ensu re that goods exported under the arrangement meet the 
relevant rules.   
10. A number of statutory bodies are involved in promoting trade and industry at home and 
abroad, including the Hong Kong Trade Development Council (HKTDC), the Hong Kong Export Credit Insurance Corporation (ECIC), the Hong Kong Productivity Council, and the Hong Kong 
Science and Technology Parks Corporation (HKSTPC ).  Their boards are normally composed of 
government officials and private sector representatives, including from manufacturing and services industries, as well as academics and professionals. 
(ii) Advisory bodies 
11. Various bodies advise the HKSAR Government in specific areas, includi ng economic matters, 
education, labour, housing, social welfare, transport,  and consumer rights.  The main advisory bodies 
within the purview of the Commerce, Industry and Technology Bureau include the Trade and Industry 
Advisory Board, Textiles Advisory Board, Ri ce Advisory Committee, and Small and Medium 
Enterprises Committee.
11  The HKSAR Government consults various chambers of commerce on 
commerce, trade, and industry, whenever necessary. 
(4) TRADE POLICY OBJECTIVES  
12. Since its previous Trade Policy Review, the HKS AR's broad trade policy objectives have not 
changed.  They are:  to promote a free, open, and stable multilateral trading system;  to safeguard its 
rights and fulfil its obligations under multilateral, regional, and bilateral trade and trade-related 
agreements and arrangements;  and to secure, main tain, and improve access for its domestic exports 
(of services in particular) to foreign markets. 
                                                      
10 Government of the HKSAR (2005d). 
11 Membership lists of these boards are ava ilable at:  http://www.tid.gov.hk/english/aboutus/ 
advcommittee/tiab.html/;  /textab.html/;  /rac.html/;  and /smec.html.  Hong Kong, China WT/TPR/S/173 
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(5) TRADE LAWS AND REGULATIONS  
13. The primary rules governing the HKSAR's trad e in goods are laid down in the Import and 
Export Ordinance and its subsidiary legislation, toge ther with other relevant ordinances applicable to 
specific commodity items.  Transparency is a major feature of the HKSAR legal and institutional 
setting;  legislation, statistics, reports, and studi es are widely available at several governmental and 
non-governmental websites, which are easy to access and regularly updated. 
(6) TRADE AGREEMENTS AND ARRANGEMENTS  
(i) Multilateral agreements 
14. Hong Kong, China is an original Member of the WTO;  it is also a party to the WTO 
Plurilateral Agreement on Governme nt Procurement (GPA).  Hong Kong, China has participated in 
the WTO Working Groups on Transparency in Gove rnment Procurement, Interaction between Trade 
and Competition Policy, and the Relationship betw een Trade and Investment.  In the context of 
implementing its WTO commitments and in suppor t of multilateral disciplines, Hong Kong, China 
has made notifications under a number of WTO Agreements (Table II.1). 
Table II.1 
Selected notifications by Hong Kong, China under WTO Agreements, September 2006 
Agreement Document reference of most recent 
notification Requirement/contents 
Agriculture  
Articles 10 and 18.2   
G/AG/N/HKG/19, 19 May 2006   
Export subsidies (outlays and 
quantities) 
Article 18.2 G/AG/N/HKG/20, 27 July 2006 Domestic support 
Application of Sanitary and Phytosanitary 
Measures  
Article 7, Annex B and Annex B, 6  
 
G/SPS/N/HKG/22, 21 March 2005 G/SPS/N/HKG/22/Add.1, 3 August 2005  
 
Changes in sanitary and phytosanitary measures and information on measures 
applied, including emergency measures 
Government Procurement 
Article XIX:5  
GPA/84, 23 September 2005  
Government procurement statistics 
(2004) 
Annex 3  GPA/W/295, 5 December 2005 Threshol d values in national currencies 
Implementation of GATT Article VI of the 
GATT 1994 (Anti-dumping) 
Article 16.4   
 
G/ADP/N/139/Add.1, 21 April 2006  
 
Semi-annual reports of anti-dumping 
actions (taken within the preceding six months) 
Import Licensing Procedures 
Article 7.3  
G/LIC/N/3/HKG/9, 4 October 2005  
Questionnaire;  rules and information 
concerning import licensing procedures
Articles 1.4(a) and 8.2(b) G/LIC/N/1/HKG/5, 7 January 2003 Changes to la ws and regulations and 
related information on procedures 
Market Access  G/MA/NTM/QR/1/Add.10, 28 March 2006 Quantitative restrictions 
Rules of Origin  
Article 5 and paragraph 4 of Annex II – ad hoc  
G/RO/N/46, 15 February 2005  
Non-preferential rules of origin 
State Trading 
GATT 1994 Art. XVII: 4(a) and Paragraph 1  
of the Understanding on the Interpretation of 
Article XVII  
G/STR/N/11/HKG, 23 March 2006  
Activities of state-trading enterprises. 
Table II.1 (cont'd)WT/TPR/S/173 Trade Policy Review 
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Agreement Document reference of most recent 
notification Requirement/contents 
Subsidies and Countervailing Measures  
Article 25.1-GATT 1994 Article XVI:1  
G/SCM/N/123/HKG, 9 February 2006  
Subsidies programmes 
Article 25.11-semi-annual G/SCM/ N/138/Add.1, 20 April 2006 C ountervailing actions taken  
Technical Barriers to Trade 
Article 10.6  
G/TBT/N/HKG/27, 24 August 2006  
Technical regulations, standards, and 
conformity assessment procedures 
Trade in Services  
Article III:3, paragraph 3  
S/C/N/312-320, 28 January 2005  
Changes in laws, regulations and 
administrative guidelines 
TRIPS 
Article 63.2  
IP/N/1/HKG/series, 24 May 2006  
Laws and regulations 
Source:  WTO Central Registry of Notifications. 
15. Under the WTO Dispute Settlement Understandi ng, Hong Kong, China has participated in 
various panel processes as a third party, involvi ng cases against the European Communities, the 
United States, Turkey, and Australia.12  On the other hand, Canada initiated an anti-dumping 
investigation in 2002 on waterproof footwear a nd waterproof footwear bottoms originating in or 
exported from the HKSAR;  the investigation was te rminated in 2003 due to negligible import volume 
from the HKSAR.  The EC also initiated two separat e anti-dumping investigations in 2005 against 
recordable compact disks (CD-R) and recordable di gital versatile discs (DVD+/-R) originating in the 
HKSAR;  the deadline for the EC to conclude the investigations is 5 November 2006. 
16. During the period under review, the HKSAR's participation in the WTO was guided by 
two objectives:  firstly, to sustain the momentum of trade liberalization, especially in areas of interest 
to the HKSAR, such as tariffs and services;  sec ondly, to strengthen and update the multilateral rule-
based trading system so that it remains an eff ective framework to promote trade expansion and 
liberalization, as well as to protect the HKSAR from arbitrary and discriminatory actions of others.  
The Doha Development Agenda provides a plat form to pursue these objectives.  The HKSAR's 
priorities in the DDA negotiations are market access  related issues, notably non-agricultural market 
access (NAMA), and services.  The HKSAR also sees the need to clarify and improve WTO rules to 
make sure that they remain relevant  and conducive to trade and investment. 
17. At the Fifth Ministerial Conference, in Cancún (10-14 September 2003), the HKSAR, 
inter alia,  referred to the three major challenges that the multilateral trading system was facing:  
sustaining the momentum of liberalization;  updating and developing the framework of existing rules;  
and ensuring the WTO becomes truly universal and inclusive, while maintaining its present 
character.13  It also called on Members to redouble th eir efforts in identifying the appropriate 
framework for the modalities for agriculture and non-agricultural market access negotiations; 
agriculture was the key that could unlock the negotiations. 
18. Hong Kong, China hosted the Sixth Minister ial Conference on 13-18 December 2005, which 
led to the adoption of the Hong Kong Ministerial Declaration.  At the Conference, the authorities 
underlined that being a small, open and externally  oriented economy, HKSAR's lifeblood was trade.14  
Hong Kong, China believed that the credibility and relevance of the WTO, the longer-term economic 
development of the world, and the chance of helpin g to lift tens of millions of the world's citizens 
from poverty was at stake pending the successful conclusion of the Doha Round.  The HKSAR 
                                                      
12 WTO document  WT/DS/OV/27, 9 June 2006. 
13 WTO document WT/MIN(03)/ST/26, 11 September 2003. 
14 WTO document WT/MIN(05)/ST/14,  14 December 2005. Hong Kong, China WT/TPR/S/173 
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expected tangible progress on all fronts of nego tiations.  On agriculture and NAMA, the HKSAR, 
inter alia,  supported the reduction and elimin ation of all trade-distorting and restrictive measures.  On 
services, the HKSAR wanted its services to enjoy free and open access in the markets of others.  
Clinching a development deal was another priority.  Rules needed to be couched tightly enough to 
secure commitments, not undermine them, to facilitate trade, not impede it.  
(ii) Regional and bilateral arrangements 
(a) Regional cooperation 
19. The HKSAR promotes close regional cooperati on on a wide range of economic and trade 
issues in the Asia and Pacific region, and is a leading member of the Asia-Pacific Economic 
Cooperation (APEC) forum.  In the past four years,  the HKSAR has continued to participate actively 
in APEC work concerning, inter alia :  APEC's political statements in support of the WTO and the 
Doha Round negotiations;  initiatives under the APEC Strategic Plan on Capacity Building to enhance 
APEC developing economies' capacity  to participate in the WTO;  and the various APEC initiatives 
on trade and investment liberalization and facilitati on.  In 2003, the HKSAR was described as "a 
model APEC citizen, and one from which some importa nt lessons can be derived" in an independent 
peer review of its individual action plan to  reach APEC's 1994 Bogor Goals on free trade and 
investment no later than the year 2010 (for de veloped economies) or 2020 (developing economies)..15 
20. Since 2004,  the Pan-Pearl River Delta (PRD) Cooperati on Initiative has brought together nine 
provinces of Mainland China in the region in add ition to the SARs of Hong Kong and Macao ("9+2") 
to increase economic efficiency by "capitalizing on the complementariness of strengths to achieve 
mutual benefits among provinces".16  More specifically, under a Pan-PRD Regional Cooperation 
Framework Agreement, signed on 3 June 2004, the "9+2" governments agreed to strengthen 
cooperation in ten areas:  infrastructure, investme nt, business and trade, tourism, agriculture, labour, 
education and culture, information and technology , environmental protection, and health and 
prevention of infectious disease.17  According to the IMF, the Pan-PRD region has the potential to 
become a very attractive market for HKSAR's financial, logistical, and other services.  
(b) Regional integration 
21. As indicated at its previous TPR, the HKSAR reviewed its policy stance in mid 2000 and 
concluded that, in order to safeguard the HKSAR's  economic interests, it should adopt a more open-
minded approach in pursuing free-trade agreements (FTAs) with its trading partners, while upholding 
its commitment to the primacy of the multilateral trading system.  The authorities would not resist 
considering the conclusion of such agreements if  they do not run counter to the HKSAR's overall 
trade policy and can bring trade and economic benefi ts.  The HKSAR considers that WTO-consistent 
FTAs should help promote the cause of eventual global trade liberalization. 
                                                      
15 APEC Secretariat press release, 26 August 20 03.  Available at:  http://www.apec.org/apec/ 
news___media/2003_media_releases/260803_tha_hkcworldopenec.html [16 June 2006]. 
16 IMF (2005c). 
17 Government of the HKSAR (2005d), "Working Relationship with the Mainland Authorities". WT/TPR/S/173 Trade Policy Review 
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Closer Economic Partnership Arrangement (CEPA)18 
22. Under the CEPA19, a manifestation of the unique "one country, two systems" principle 
(section 2), as from 2003 the HKSAR and Mainland Ch ina have undertaken a process of continuous  
liberalization (building blocks approach)20 in goods and services trade that also involves trade and 
investment facilitation.21  The main text of the CEPA (i.e. CEPA I) was signed on 29 June 2003, its 
Supplement (CEPA II) on 27 October 2004, and CEPA  III on 18 October 2005.  Under CEPA I 
(effective 1 January 2004) and CEPA II (effective 1 January 2005), the Mainland applies a zero tariff 
rate to imports of HKSAR origin  products covered in 1,108 Main land 2005 tariff codes and meeting 
CEPA rules of origin (ROOs) (Chapter III).  Unde r CEPA III, since 1 January 2006, the Mainland has 
given all HKSAR-origin products except for a few pr ohibited articles (subject to implementation by 
the Mainland of provisions of international tr eaties and agreements) ta riff-free treatment, upon 
application by local manufacturers22, and upon the CEPA ROOs being agreed and met.23  T h e  
Mainland also provides preferential treatment to HKSAR service suppliers in 27 service areas (Chapter IV);  in general, the liberalization measures provide wider and earlier access for HKSAR 
service suppliers ahead of China's WTO commitment s timetable, while in sectors like audiovisual, 
transport, and distribution, the concessions go beyond these commitments. 
23. While the impact of merchandise trade liberaliza tion per se is likely to be small, given the 
small size of HKSAR's manufacturing sector
24, the authorities consider that the CEPA liberalization 
has offered new business opportunities to and helped the restructuring of the manufacturing sector in 
the HKSAR.  The direct and indirect impact of the service-sector liberalization component of CEPA 
(including tourism) is expected to become increa singly significant over time.  The CEPA is expected 
to offer new business opportunities in the Mainla nd for HKSAR enterprises and professionals, and 
enhance the HKSAR's attractiveness to overseas investors25;  it is also viewed as a help for sustaining 
HKSAR's broad-based economic recovery.  Acco rding to a quantitative study by the HKSAR, 
completed in 200526, on the economic impact of CEPA I, CEPA  is estimated to have created about 
                                                      
18 Government of the HKSAR (2005h);  Government of the HKSAR (2005f);  Trade and Industry 
Department (2005);  Hong Kong Trade Development Council (2006);  IMF (2004a);  IMF (2005b);  and 
ADB (2005). 
19 For details about the three phases of CEPA, includ ing analysis of its impact on Hong Kong, see:  
http://www.tdctrade.com/cepa/.  The CEPA main text, its six Annexes and Supplements were viewed at:  
http://www.tid.gov.hk/english/cepa /legaltext/cepa_legaltext.html. 
20 The Mainland is the HKSAR's base for outward processing activities;  th e HKSAR is the largest 
foreign investor in the Mainland.   
21 These facilitation measures include the exemp tion of textiles and clothing products under 
Hong Kong's outward processing arrangement from the Mainland's regime of export duty, imposed a result of 
the special safeguard measures of the United States and the EC. 
22 For products that have no agreed ROOs, HKSAR manufacturers may apply and request to include 
them in subsequent phases of ROO discussions, which are held twice a year as from 2006.  According to the 
authorities the progressive approach adopted for developing the CEPA ROOs represents a pragmatic way of attaining substantial liberalization within the shortest possib le period of time and is in line with the spirit of the 
WTO provisions covering RTAs. 
23 Information on Certificates of Origin (CEPA) is sued in the HKSAR is transmitted to the Mainland 
electronically to facilitate verification at customs entry points.  Cooperation between the two Customs 
administrations has also been agreed on, to stre ngthen enforcement of the CEPA origin system. 
24 According to the HKSAR authorities, on 1 January 2006, about 96% of the HKSAR's direct exports 
of goods to Mainland China were tariff free. 
25On the other hand, as indicated in Chapter I, the CEPA has already helped strengthen investor 
confidence by motivating Mainland enterprises to set up businesses in the HKSAR. 
26 Impact on the Hong Kong Economy of CEPA.  Viewed at:  
http://www.tid.gov.hk/english/cepa/index.html.  See al so studies on opportunitie s for HKSAR under CEPA. 
Viewed at:  http://www.tdc trade.com/econforum/tdc/tdc041002.htm;  http://www.tdctrade.com/econforum/ Hong Kong, China WT/TPR/S/173 
 Page 27 
 
 
29,000 new jobs for HKSAR residents, generated HK$5.4 billion in services receipts, and induced 
HK$5.5 billion capital investment in HKSAR in the first two years of implementation.  As at end-May 2006, 13,037 applications for Certificate of Hong Kong Origin - CEPA had been approved, 
involving total export value of HK$4.6 billion.  C EPA's Individual Visit Scheme (IVS) has been 
implemented in 44 Mainland cities, and 13.2 million trips have been made by Mainland residents to 
HKSAR since its implementation.  The number of  IVS visitors surged by 30.3% over 2004, to 
5.6 million in 2005, accounting for 44.3% of the tota l Mainland visitors and 23.8% of Hong Kong's 
total visitor arrivals. 
24. According to the IMF, increasing integration with the Mainland has proven to be a double-
edged sword, since it has been one among a host of factors that promoted price convergence, exerting 
downward pressures on goods and factor prices in HKSAR under the linked exchange rate system.
27  
Moreover, the rapid improvement in its neighbo urs' competitiveness is posing increasing challenges 
to HKSAR's traditional advantages and position as a trade intermediary for and investor in the 
Mainland.   
25. In December 2003,  the CEPA was notified jointly to the WTO Committee on Regional Trade 
Agreements as a free-trade area (within the meani ng of Article XXIV of the GATT 1994) that also 
provides for the liberalization of trade in servi ces within the meaning of Article V of the GATS.28  In 
April 2006, the WTO Committee on Regional Trade Ag reements completed the factual examination 
of CEPA. 
Other 
26. The HKSAR started its first FTA negotiations with New Zealand in May 2001 for a Closer 
Economic Partnership Agreement (HK/ NZ CEP).  Five rounds of formal  negotiations have been held 
so far;  they encompass, inter alia , the elimination of tariffs, the liberalization of trade in services, and 
liberalization and promotion of bilateral invest ment.  Negotiations are still in progress as some 
technical difficulties remain to be resolved. 
(c) Other bilateral agreements 
27. The HKSAR maintains a number of bilateral ag reements with various countries.  These 
include investment promotion and protection ag reements, avoidance of double taxation agreements29, 
and air service agreements (Chapter IV). 
                                                                                                                                                                     
tdc/tdc041205.htm;  http://www.tdctrade.com/econfor um/tdc/tdc041206.htm;  and http://www.tdctrade.com/ 
econforum/tdc/tdc051101.htm. 
27 IMF (2004a).  The HKSAR authorities indicate other more relevant factors that contributed to the 
prolonged deflation in Hong Kong, China during 1998-2003;  more specifically, asset price adjustments, 
including the collapse of property prices, and the weak domestic demand in the aftermath of the Asian financial 
turmoil and other external shocks (the 9/11 attacks, the outbreak of SARS (Severe Acute Respiratory Sndrome), 
etc.). 
28 WTO document WT/REG162/N/1-S/C/N/264, 12 January 2004;  WT/REG162-series;  and 
WT/TPR/S/161, 28 February 2006. 
29 The HKSAR has concluded comprehensive avoidance of double taxation agreements (CDTAs) with 
Belgium and Thailand.  It also signed a limited avoidance of double taxation arrangement with Mainland China 
in February 1998.  Negotiations with Mainland China to  expand this into a comprehensive arrangement were 
completed in March 2006;  an "arrangement" was initialled subsequently, and plans are under way for the 
formal signing.  The HKSAR has plans to negotiate su ch arrangements with other jurisdictions, including 
Viet Nam and the Czech Republic.  The HKSAR also has a number of arrangements for the avoidance of double 
taxation of shipping income (with Denmark, Germany, the Netherlands, Norway, the United Kingdom, and the WT/TPR/S/173 Trade Policy Review 
Page 28 
 
 
(iii) Preferential trade arrangements 
28. In 2005, certain domestic exports from the HKSAR we re eligible for preferential treatment in 
Canada, Norway, and the Russian Federation unde r Generalized System of Preferences (GSP) 
schemes.30  In 2005, Hong Kong, China exported G SP-eligible goods worth HK$6.7 million to 
Canada, accounting for 0.56% of its domestic e xports to Canada, and HK $0.33 million to Norway, 
accounting for 0.48% of its domestic exports to Norway.  There were no HKSAR exports to the 
Russian Federation eligible for GSP treatment in 2005.31 
(7) FOREIGN INVESTMENT REGIME  
29. The HKSAR remains receptive to foreign i nvestment and does not discriminate between 
foreign and domestic investors.32  Attracting foreign investment is  a priority of the Government.  
Efforts in this area are spearheaded by a dedicat ed department named Invest Hong Kong, which has 
investment promotion staff in various  economic an d trade offices of the Government and external 
consultant companies in strategic locations world- wide, to actively encourage and facilitate foreign 
investment in the HKSAR.  Foreign investment is widely considered beneficial, even crucial, for 
economic stability.  Despite the openness of the ex isting legal framework to FDI, in practice the 
absence of a comprehensive legal framework for competition policy33, and the presence of 
conglomerates may deter foreign service pr oviders from establishing in the HKSAR.34   
30. All businesses in the HKSAR must obtain a Busin ess Registration Certificate from the Inland 
Revenue Department (IRD) within one month of commencement of business.35  Foreign investors in 
the HKSAR may use all available forms of business en tity;  private limited companies and branches 
of foreign companies are the most common.  Th ere is no capitalization requirement for a private 
                                                                                                                                                                     
United States) and airline income (with Bangladesh, Canada, Croatia, Estonia, Finland, and Germany).  There 
are also arrangements with Singapore and Sri Lanka covering both shipping and airline income.  Full details of 
the double taxation relief are available from the Inland Revenue Department online information.  Available at:  
http://www.ird.gov.hk/eng/ta x/dta1.htm.  Among the various arrangeme nts, only the CDTA with Thailand 
contains "tax sparing" provisions (Article 22, paragraph 3).  However, the provisions only have effect for a period of seven years from the day on which the CDTA comes into effect.   
30 UNCTAD (2005a). 
31 The authorities note that the figures were obtained from the relevant certificates of origin for GSP 
claims issued by the five government- approved certification organizations;  they represent only goods eligible 
for GSP treatment, but not the amount of goods for which GSP treatment has been claimed. 
32 Index of Economic Freedom (2006). 
33 An independent review committee comprising mostly non-official members was appointed by the 
HKSAR Government in June 2005 to study the existing competition policy and consider the need to introduce a 
cross-sector competition law in Hong Kong.  The Committee published its report on 4 July 2006 (viewed at:  http://www.edlb.gov.hk/edb/eng/info/CPRC.pdf).  
34 The HKSAR authorities indicate that the mere pres ence of conglomerates may not be tantamount to 
market dominance, and market concen tration by a few large market play ers may not necessarily undermine 
market contestability.  They consider that the  market is still contestable so long as there is no restriction on 
market entry, notwithstanding the presence of large market players. 
35 The Business Registration Ordinance and the Business Registration Regulations exempt the 
following businesses from the requirement of registration:  (1) the activities of charities;  (2) the business of agriculture, breeding or rearing of livestock, poultry,  or fishing (exemption not applicable to companies 
incorporated or required to be registered under the Companies Ordinance);  (3) the business of bootblack;  and 
(4) business carried on by such hawkers who require licences under the Hawker Regulation, other than businesses carried on inside the main structure of a building. Hong Kong, China WT/TPR/S/173 
 Page 29 
 
 
company.  Reportedly, the simplicity of proce dures for investing in, expanding, and establishing a 
local company is a major attraction for foreign investment in Hong Kong, China.36  
31. There are no restrictions on foreign exchange  transactions, capital movement or repatriation 
of funds, nor special approval or notification requi rements for foreign investments in the HKSAR.  
The authorities maintain that there is no sector/c ountry-specific incentive on inward/outward foreign 
direct investment. 
 
                                                      
36 Index of Economic Freedom (2006).